Antitrust Injury and Standing

This past summer, I was a member of a trial team that prosecuted a patent antitrust jury case. The result was a substantial damages verdict in favor of the plaintiffs. In post-trial motions, the defendants raised the issues of antitrust injury and antitrust standing. Although the case settled before the court could rule on these motions, it would be worthwhile to consider those important antitrust concepts.

Private parties can only bring antitrust claims for violations of Sections 1 and 2 of the Sherman Act through Section 4 of the Clayton Act. Section 4 states that “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue ….” Read literally, this language is broad enough to cover every conceivable harm, direct or indirect, close or remote, that might be caused by an antitrust violation whose effect may “ripple” through the economy.

However, the Supreme Court has rejected such a literal reading and placed limitations on the scope of a private right of action. One such limitation is “antitrust injury.” The plaintiff must prove an injury of the type the antitrust laws were intended to prevent, and that flows from the conduct that makes the defendant’s acts unlawful.

A second limitation is “antitrust standing.” It requires a showing of factors similar to the concept of proximate cause. Antitrust standing should not be confused with standing under the Constitution. Harm to the antitrust plaintiff is sufficient to satisfy the constitutional requirement of injury in fact. However, under Section 4 of the Clayton Act, the trial court must make a further determination of whether the plaintiff is a proper party.

ANTITRUST INJURY

To understand the concept of antitrust injury, it is helpful to put the doctrine in the factual context of the leading case that enunciated the principle. In that case, the defendant manufactured and sold bowling equipment, including automatic pin-spotters. The defendant had repossessed a number of bowling alleys from customers who had purchased its equipment but had defaulted on the purchase price. Because there was not a market for used pin-spotters, the defendant took over the defaulting bowling alleys and operated them.

Competitor bowling alleys sued, alleging harm caused by defendant’s acquisition of the defaulting bowling alleys. The plaintiffs alleged that they would have made greater profits if the defendant had allowed the bowling centers to close instead of operating them.

The Supreme Court held that such damages were not the type of injury the antitrust laws were intended to prevent, and therefore they did not meet the test of antitrust injury. The competitor bowling alleys did not meet this test because market, farmers selling in the cash market would have standing. Standing would be found because the farmers’ injuries were inextricably intertwined with the injury sought to be inflicted on the futures market. This conclusion would be based on a finding of a close and continuous link between the cash and futures markets. Although the defendants’ conduct was directed to the futures market, the by asserting that plaintiffs’ alleged overcharges had been passed on to plaintiffs’ customers, and declining to allow plaintiffs to use “pass-on” as a sword to permit suits by indirect purchasers who claimed that they had been injured because the alleged overcharge had been passed on to them. The principle behind these decisions was a fear that the use of pass-on theories would transform their injuries arose as a result of the defendant’s increased competition in running the bowling alleys.

The central interest of Congress in enacting the Sherman Act was to protect the economic freedom of participants in the relevant market.

ANTITRUST STANDING

As noted above, the concept of antitrust standing is similar to the proximate cause or remoteness considerations in tort law. This doctrine examines the connection between the asserted wrongdoing and the claimed injury in order to limit the class of plaintiffs to those in the best position to vindicate the antitrust infraction.

The Supreme Court, in the leading case regarding antitrust standing, articulated a test involving several factors that limit the persons deemed injured in their business or property under Section 4.

The first of these factors requires an examination of the nature of the plaintiff’s alleged injury, recognizing that the central interest of Congress in enacting the Sherman Act was to protect the economic freedom of participants in the relevant market. However, the boundaries of this interest are not necessarily so narrow as to limit recovery to only competitors or consumers. The Court held that standing would exist for those parties whose injury was inextricably intertwined with the injury the competitors sought to inflict on the market.

For example, if defendants conspired to depress soybean prices in the futures conduct predictably impacted the cash market.

Sometimes this analysis focuses on whether the plaintiff’s injury is derivative of an injury to another party. For example, the injuries of stockholders, employees, suppliers, or landlords are said to be derivative of the injury to the company. Courts have defined a derivative injury as that where the plaintiff seeks to stand in the shoes of another, or complain of secondary consequences arising from an injury to another. A party whose injury is derivative generally does not have standing.

The second factor considered by the Supreme Court involves an analysis of the directness of the relationship between a plaintiff’s injuries and defendant’s conduct. This factor is very similar to proximate cause in tort law. The proximate cause test often revolves around the concept of “foreseeability.” This factor also considers whether the chain of causation is direct and unambiguous or whether it is tenuous and speculative.

The third factor is whether the indirectness of the alleged injury will create the risk of duplicative recoveries, or a complex apportionment of damages. This takes into account earlier decisions by the Supreme Court refusing to allow defendants to use “pass-on” as a shield private treble-damage actions into massive efforts to apportion the recovery among all the potential plaintiffs that could have absorbed all or part of the overcharges.

The fourth factor is whether there are more direct victims of the alleged conspiracy. The Court held that the existence of an identifiable class of persons whose self-interest would normally motivate them to vindicate the public interest in antitrust enforcement diminishes the justification for allowing a more remote party to sue.

The concepts of antitrust injury and antitrust standing are important principles in antitrust law, limiting the potential claims and parties. Both plaintiffs and defendants should have a clear understanding of these concepts.

Jeffery Cross is a columnist for Today’s General Counsel and a member of the Editorial Advisory Board. He is a partner in the Litigation Practice Group at Freeborn & Peters LLP and a member of the firm’s Antitrust and Trade Regulation Group. jcross@freeborn.com